Since launching our premium Iron Condor and Trend newsletter services, we've received lots of great emails asking for more details. Here are answers to some of the more frequent questions.
As always, we welcome your emails - please contact us with any questions or comments you may have.
What's with the name?
Beta measures the volatility of an asset in comparison to a broad index like the S+P 500. If a stock has a beta of 1.5, it is theoretically 50% more volatile than the index it is being compared to. The underlying belief is that out-performance requires additional volatility. We at BetterBeta believe that you can outperform the broad market with less volatility through the intelligent use of options strategies.
In short, we provide better beta.
Do you offer autotrading?
No, we do not. We are a newsletter service and it is up to the individual subscriber to use the information we publish as he/she sees fit.
Iron Condor Program
What differentiates BetterBeta Trading from other iron condor strategies? How can you achieve more consistent profitability while mitigating large losses?
Many iron condor services suffer from a poor risk/reward ratio. Their high success rate lulls traders into a false sense of security, leaving them unprotected from a bad month that can wipe out a year or more of gains. We seek to avoid these pitfalls through three key methods:
- We trade iron condors with short strikes that have higher deltas in exchange for higher credits. This allows for a return on risk of upwards of 40% on a RUT or SPX iron condor, avoiding those low-probability account blow-outs.
- We have shifted our service from monthly to weekly options expiration, which decreases our holding time and produces more trades annually than a monthly service. This puts the law of large numbers in our favor, reducing the impact of a string of losses.
- We issue long put or call spreads when our short strikes are in jeopardy. This reduces the impact of trending market conditions which is always a challenge to neutral strategies like the iron condor.
Our complete trade log is posted on our strategy and performance page.
How many positions are open at a time?
As of December 5, 2016, we have moved our Iron Condor newsletter from monthly to weekly options. Each week, you will receive 2 Iron Condor options trade recommendations - one for the Russell 2000 Index (RUT) and one for the S&P 500 Index (SPX), generally 8 days ahead of expiration. There is typically one day of overlap when we have last week's options open and have just opened this week's order.
What is the recommended minimum account size to start trading your service?
Ideally, we'd recommend a minimum of $2,500 of trading capital. A single 5pt RUT or SPX iron condor requires $500 margin (minus the credit, depending on your broker). For the Trend service, we recommend $5k but you can trade the service with less capital if you are comfortable with greater swings in your account balance. Ultimately that decision is up to the subscriber and we cannot offer individual guidance.
Do you let iron condor trades expire worthless or close them early prior to expiration?
We typically let them expire worthless, assuming the short strikes are not at risk. When they are, we issue a trade recommendation to buy a long call or put spread to reduce the directional risk. Unlike our previous monthly service, we no longer issue rolls or adjustments for the open iron condors. We found that they were difficult to get good fills and often eroded much of the potential gains from selling the original iron condor.
What does a typical trade recommendation look like? Does it contain limit prices for entry and exit as well as stop loss targets?
A typical trade recommendation will include a clearly delineated trade plan and price instructions. We always stress the use of limit orders and will provide those details.
Are trade alerts (entry, hedges and exit) issued in real time or outside of market hours?
We take every step possible to structure our services in a way that doesn't require you to update your trades during market hours. In fact, iron condors tend to work better when you're not watching the intra-day noise of the market. Alerts will be sent in advance whenever possible to allow you to enter your trades outside of market hours (in the evening, for example), and have them execute when the markets re-open. However, when market conditions warrant, we will issue alerts during market hours.
What kind of liquidity, slippage or fill issues have you experienced with this strategy?
We trade a highly liquid, electronically traded indexes (RUT and SPX) with ample open interest and reasonable bid/ask spreads. Assuming you are using a broker who specializes in options and entering limit orders, you should have no issue with fills and slippage.
Does Trend following work?
Absolutely. There is a mountain of academic studies, available for your reading pleasure online, that consistently cite momentum as being one of the only market anomalies that can be exploited by individual traders. Many hedge funds, CTAs and quant strategies run trend following strategies across a variety of time frames. For some additional background, please visit our recent blog post about SSRN - a wealth of studies and rigorous backtests that support trend following.
Do you trade single stocks?
No. We only trade options on the top 20 ETFs by options volume. This ensures liquidity, good bid/ask spreads and none of the risk associated with single names. It allows us to avoid the gamble of earnings releases each quarter. You'll find that we get plenty of price movement via options on the ETFs that we trade.
Do you just buy calls and puts for your trend trades?
We do buy longer dated calls and puts to get the directional exposure that we need. To reduce the impact of theta decay and lower the cost of our long options, we typically use shorter-dated weekly options to sell some out of the money premium. This is especially helpful for the trend trades that can be held for a month or more.
How long do these trends last?
Our winning trades will run anywhere from 2-5 weeks, while we are out of the losers within a week on average. You can certainly trade trend strategies across multiple timeframes - further support for the robustness of the approach - but we find that the medium term allows for a level of responsiveness to changing markets while not incurring high transaction costs from trading too frequently. It also allows us to disengage from the noise of the market intraday.
What are counter-trend trades?
In addition to trend signals, we also issue trade alerts for counter-trend or mean reversion trades on the same group of ETFs. These are intended to be shorter trades that take advantage of an ETF that has become overbought or oversold and is returning back to the mean. These trades have shorter hold times - typically 5-7 days for shorts and 10-15 for longs. They may be counter to an existing trend trade that we have open. We find that they offer a diversified source of returns that can help when markets are rangebound.
How do you notify subscribers of new trades?
Every subscriber has access to the premium section of our website and they receive all trade alerts - open, close, adjustment - via email. Additionally, we offer a private twitter feed for all subscribers where we also publish all trade alerts.